Your balance sheet: what can it tell you?

While the income statements that we have been dissecting over the last few posts generally provide the best source of information for us to financially analyze a practice, the balance sheet represents another portion of the financial statement package that provides valuable information.  

First, to put us ahead of most of the media – who seem to refer to any financial statement as a balance sheet – let’s define a balance sheet.  A balance sheet is representation of a practice’s financial position as of a given point in time.  So, if we were to take a snapshot of a practice as of, say, December 31, 2013, we would look at the items of value (assets), financial obligations (liabilities) and built-up worth (equity) in the practice at that point in time.

This is not a financial accounting blog so I will not get into things like assets = liabilities + owners’ equity or inventory valuation methodologies.  Any popular financial accounting package will be able to generate a balance sheet for you.  Once that happens, the steps to analysis are very similar to those for an income statement:

Read more...

Case study: financial statement analysis - part 2

Our financial statement analysis case study rolls on unabated.  If you haven’t read it, you may want to check out part 1 first.  Today, we discuss our approach to the clinical supplies and employee costs portion of the income statement.

The problem: Clinical supplies cost regularly ran roughly around 12% of revenue when we would normally expect something in the 7% range (or less given the solid volume in the practice).  When we evaluated the process, we discovered no controls over the ordering process.  Doctors, the clinical supervisor and clinical staff were allowed to order as they saw fit.  Orders were placed via phone and individual supplier websites instead of consolidated into one place.  Like office supplies, shelves were overflowing with clinical supplies.

Read more...

Case study: financial statement analysis - part 1

Financial statement week has now extended into 2 ½ weeks of action, but it is an important enough topic (with still a lot more to go) that merit the extra time.  Today, we show how we applied the knowledge gleaned from part 1, part 2 and part 3 of our series to solve some issues with an actual practice a few years ago (some of the numbers and the quarters contemplated have been changed somewhat, but the overall feel remains the same).  

As always, we hope that the information here proves beneficial to you and the situations shown here might apply in some way to your practice, of if they don’t, at least get the juices flowing on potential solutions to issues that your practice may be facing.

To our case study bureau

Read more…

Marketing Monday: Don't be THAT practice

Recently came across this article (scroll down to the 8/11/13 post) in which the author goes through dentists like Kleenex because of the way he was treated at the front desk.  In what will be a series of obvious statements as I go through this, you’ve spent a lot of time and money and put your credibility on the line trying to get patients in the door.  Then, when they walk in, they are immediately turned off by the first 5 minutes of their experience.  You ever walk into a restaurant and have your entire meal be defined by your initial experience with the host or hostess?  Not a whole lot of difference here.

This gives an intro for a perfect Marketing Monday post.  How do you make sure that the patient experience is positive right from the start.  Try to think of it as your front desk person being the host or hostess of a big party.  You need to talk to everyone to make them feel good about themselves even though you don’t have a lot of time to spend with each person because you have a lot of people to which to attend.  A number of folks try to overcomplicate the process (like with a lot of things), but just like any other experience, a productive patient introduction to an office boils down to some basic, simple factors (make sure to stick around for our “melting pot” video at the end of the post):

Read more...

Financial statement analysis made easy - part 3

If you’re still with us, you’ve gone through part 1 and part 2 of the process to get ready to analyze your financial statements.  Now, we are ready to get down to the hardcore analysis part to find what the numbers are telling us.  Let’s take one more look at our sample statements.  

Here’s one way to break them down.  There’s no magic to the order in which you do these things, but going through each of the pieces we describe here will put you well on your way to identifying problem areas and putting a solution in place.  

Read more...

Financial statement analysis made easy - part 2

When we last left our story, we had a summary income statement, prepared on a consistent basis that looked like this:

What can we tell from this statement?  Not much.  Is $300,000 of revenue good for this practice?  Given this statement, we really don’t know.  We can compare to absolutes (e.g. revenue of $100,000 per month is pretty good).  But if the revenue for this quarter represents a drop of $75,000, there are problems to be addressed.  To set us up for effective analysis, we need 2 more pieces:

Read more...

Financial statement analysis made easy - part 1

Over the next several posts, we’re going to go through techniques for analyzing your financial statements along with some preparation tips to enable you to make the best decisions for your practice.  Please note that as we go through this information, we are not discussing reporting for tax purposes (an entire industry and blog unto itself), nor are we planning to discuss the rules of Generally Accepted Accounting Principles as it pertains to your financials.  That is a discussion for you and your accountant.  Here, we are focused on analyzing your financial information to make decisions about the operating needs and opportunities for your orthodontic practice and dental practice.  We’re also focused on the profit and loss statement (income statement) and not other financial statements.  At some point, we will get into those other statements as well.

When performing an analysis, here are some basic tips/techniques:

Read more...

Why is My Practice Engine free?

If you haven't visited us before, we can sum up My Practice Engine by stating that we are a service simply focused on providing expert, free advice on the business operations and related services (check out our tool kit to the right) for orthodontic and dental practices.  Among the most frequently asked questions we get on this site are ones like this: “Why do you say that all of your consulting and other services are free?  What’s the catch?  When do you sneak in with the big pitch or start hard-selling me to give up a big piece of my profit for your full range of services?  If not, how do you make money off of me?”

Let me try to answer each of these questions individually.

Why do you say that all of your consulting and other services are free?

You’ve read our history (For part 1, click here.  For part 2, click here).  We’ve been very fortunate to meet some excellent people in this business and we’ve been able to work with those people to achieve significant success, both for them and ourselves.  For evidence of the scope and size of Orthodontic Centers of America, Inc. (or later, OCA, Inc.), you can check out some of our old SEC filings online (here’s one).  For some evidence on the success of our affiliates, you can look at far-reaching practices like Orthodontic Specialists of Florida  and OCA Japan.  The results have been very positive, and now it is our time to pay it forward.  We’ve been able to learn a lot over the years –and we’re still developing practices all day, every day.  We want to share that knowledge with those who want to build their practices, turn around results or are just thinking about starting up a practice.  We’ve seen a lot, made a lot of mistakes and learned a number of important lessons that can benefit just about any other practice out there.  We want to be able to pass that on.

Read more...

The fundamental truth about your business

I recently read this article about the costs of running a dental practice.  Including owner’s pay in the computation of cost for a dental practice or orthodontic practice is not unique to those practices.  This is the case for any small business.  As we proceed into the financial statements portion of financial accounting week(s), we must begin with the main fundamental truth of running your orthodontic business or dental business: you, as the owner, are almost always the last one to get paid.

Read more...

Deposits don't add up? Investigate!

At this point, hopefully, you are the point at which you’ve set up the 4 part process for controlling collections and done your deposit reconciliation.  You’re going through the information and you notice a discrepancy.  On one particular deposit day, your practice management software shows a deposit of $3,500, but the corresponding amount on your bank statement shows $3,000.  What happened?

Here’s a process you can go through to get to the bottom of the problem.  Before continuing, I will state that I am not a certified fraud examiner or other licensed agent, but I have seen quite a number of these situations to know how find out what happens.  You may decide that your problem is severe enough to warrant bringing in an outside expert, but for the others, here are some things you can do before bringing in someone else and incurring some additional cost.

Read more...

4 steps to preventing theft and protecting your cash

Following up on yesterday’s deposit reconciliation post, today we present a strategy for a more comprehensive policy to ensure that your funds get from point A (the payor) to point B (your bank account) without interruption.  A system of good collection controls is not paranoia.  It isn’t draconian.  This is simply a strong business practice employed by the best small, medium and large sized businesses.  Obviously, there are a number of ways to protect yourself.  We’ve adapted the processes described below for orthodontic and dental practices and have found excellent success with them over the years.  

The process has 4 parts to it.  While no part has a dollar cost, it may require a time investment for you and/or a trusted member of your staff.  But once this becomes part of the daily routine, you will find that this occupies a lot less of your time than originally thought.  And, with the comfort it provides, engaging these processes should be time well spent.

Let’s get to the process:

Read more...

The best defense against theft

You work hard.  You go out of your way to provide your patients with an outstanding experience both in terms of their comfort level and treatment outcome.  You tirelessly effort the addition of new patients to your practice.  You manage the day-to-day processes to keep everything running at the highest level.  You deserve to be paid for your effort.

When you are paid, you need to ensure that the funds make it from the patient/insurance company to your office and into your office’s bank account.  Unfortunately, as we see on occasion, the process of funds going from your office to the bank get interrupted when someone takes money for themselves.  We call that stealing and in at least 49 states, it’s against the law and can decimate your practice.

To avoid having to be the doctor who lost money to this person, you want to have processes in place to protect against potential theft (or simple sloppy handling of funds).  In our next post, we’ll lay out a whole control process, but today, I’d like to focus on an important part of the process: doing a regular deposit reconciliation.  In other words, you need to have a regular process to ensure that collections entered into your practice management system actually make it into the bank.

Regardless of the other processes you may have in the practice, you should be doing this on at least a monthly basis as a check to provide some comfort that cash is flowing to where it should. 

A deposit reconciliation is very simple in theory, and if you stay on top of it, it is very simple to do in practice as well.  Here are the basic steps:

Read more...

Marketing Monday: The 4-step marketing plan

Our first post of financial accounting week merges with Marketing Monday to bring you the following presentation on setting a budget.

Let me start this post with an obvious statement: if you have a dental or orthodontic practice, you will almost certainly need to market to attract patients.  And if you are going to market, you need a plan in place.

With the obvious out of the way, here are the 4 steps to developing a useful marketing budget.  The process won’t take very long at all, but has proven to be useful for a wide variety of markets from the size of Brunswick, GA to New York, NY:

Read more...  

Financial accounting week is coming!

Financial accounting week starts on Monday, August 12.  And yes, financial accounting does sound somewhat boring, but it is a substantial, important aspect of the business side of an orthodontic practice.  Will it be some sexy financial accounting?  Awwwww, ye...Well, no, but we will cover some key topics like:

- Reconciling deposits between your patient accounting software and bank to ensure that no one is walking off with your funds.

- Key factors in preparing financial statements

- Preventing theft

- Financial statement analysis

- And so much more!

(Did the exclamation marks help?)

Case study: Running a successful Medicaid practice

We’ve all heard it before: “Medicaid?  You can’t make any money with Medicaid in most states.  Yeah, Texas, New Mexico, Tennessee and Arkansas make it easy –for now—but most other places, the reimbursement is way too low for a practice to handle the volume and earn a decent profit.”

In a number of ways, that statement rings true.  Your expected fee and monthly payment will be lower.  And since the market for Medicaid is generally very underserved (because of the lower fee and patient compliance issues), volume for practices accepting Medicaid can swell very quickly.  That can create a new list of headaches (some of which we discussed earlier).

But what gets lost in this discussion –and frankly, in the whole Obamacare-reduces-remibursement discussion-- is that solid business and efficiency systems supporting a practice enables you to earn a good living and provide top notch patient care to a patient population crying out for quality care.

For evidence of how this works, we take you out to our case study bureau for a closer examination of one such situation.

Read more...

4 ways to reduce the cost of your practice management software

In responding to our fascinating podcast on cloud computing, several listeners/readers asked about one key component: cost.  In our cast, we talked about a 5-user cloud computing model costing as much as $1,000 per month in fees.  Of course, $1,000 per month translates into $12,000 per year which would seem to negate the cost savings of eliminating server and upfront software costs.  A more traditional networked setup can run as much as $25,000 to get off the ground.  This doesn’t include the cost of training or the cost to convert from an old practice management system.

Here, in this post, we try to tackle the issue of cost and suggest some ways you can keep the costs of your practice accounting application down.  After all, these systems, while used constantly in your practice, are primarily in existence to gather data and process it for you.  Any true value in your system comes with what you do with that data.

Here’s what we suggest to keep those costs under control:

Read more...

Marketing Monday: Discussing the contract and fee (video)

We’re extending our selling series one step further and taking you to what is usually the final step in the consultation process: getting the contract signed (or case accepted or whatever your vernacular may be here).  Here’s your opportunity to sum up the consultation day and dig into the financial part of the contract.  As you go through the video, I’d like to point out a few items of interest:

The financial portion focuses on the monthly payment, NOT the total fee – The total fee is mentioned briefly at the end of the process, but most of the financial portion is focused on the monthly payment amount.  In this case, the $129 monthly payment number is the important issue for the patient.  If that number can be fit into the monthly budget, you are going to get a positive response.  If not, pushback will happen and you need to decide whether or not to lower the payment (as discussed earlier) or stick to your payment.  One other item not shown in the video: in this case, this particular practice charges a $516 “retainer” fee (4 monthly payments) to be paid at the time of debond.  If the patient balked at this number, that payment could have been broken into 4 additional future payments or amortized into the existing monthly payment.  If amortized into the existing monthly payment, the monthly payment would be $146 ($516 retainer fee divided by 30 months quoted in the video plus the normal $129 monthly payment).

Call to action – The records payment is cut in half for signing up that day.  The patient is obviously already interested because he or she is there.  This simple call to action gives that one last nudge to get the deal done.

Read more...

Podcast: Should your practice be in the cloud?

On today's podcast, we talk with Michael Cusimano, currently with AT&T, about traditional practice management software arrangements versus cloud-based ones (i.e. practice management systems with the key application and data residing on the internet).

Mike has spent considerable time involved in all aspects of information technology for dental and orthodontic practices.  He and his team built a full-featured practice management software (complete with financial, scheduler, queuing, auto drafts, etc., etc.) from scratch as well as entire technical support team from the ground up.  When we say we bring you people with deep experience in the field, we mean it.

Take a listen to the podcast here.   If you have any questions or comments, click here.

Finally, if you enjoyed our intro music, you can check out a whole lot more from the Flow Tribe by clicking here.